A business supplier's perspective on Brexit
Brenntag, a Germany-based multinational, supplies chemicals to companies all over the world. Andy Bounds asks its British chief executive Steve Holland how he expects Brexit to affect the business.
Presented by Andy Bounds and produced by Fiona Symon
From The Financial Times in London, I'm Andy Bounds, and this is FT News. Steve [? Holland ?] runs a multinational chemical supermarket, with a presence in 74 countries. Germany's Brenntag is a global market leader in chemicals, supplying a range of industries from aerospace to bakeries to oil rigs. I met him during a recent visit to the UK, and asked him about life as a British executive running a German company, and how he thought the business might be affected by Brexit.
You used to run your own business, which Brenntag bought, and then you became chief executive of the whole company. It's quite rare for a British person to be running a German business. What differences have you encountered in business culture between the two countries?
Well, it's a very interesting question. I think, to be fair, I probably entered Germany with a stereotypical view of the Germans as I walked through the door. And I quickly learned that wasn't actually necessarily true. And certainly, when I moved to the head office nearly 10 years ago, it was a relatively hierarchical construction in terms of the culture, and indeed the building. And that's rather changed now. We've got lots of open doors and a lot of more movement, and a very vibrant and creative environment, so which is rather different to what I first saw when I first moved there.
But [? once ?] [INAUDIBLE] hierarchy, which I think we went through and changed quite quickly. I think one of the things which probably most people wouldn't recognise is that the German sense of humour is as close as to the English as you might imagine. We have a lot of smiling going on, a lot of laughing going on in our organisation. So that's probably the surprise, if you like, when I first went to Germany.
And in terms of the UK as a place to do business, we've got Brexit coming up. It looks like we'll [INAUDIBLE] [? Customs ?] [? Union. ?] What does that mean for Brenntag?
It's obviously a challenge, but it's not a challenge that we've not overcome previously. The world doesn't end just in Europe. And we deal with North America, Latin America, Asia Pacific, India, et cetera, et cetera. So we're bringing goods into the UK and outside the European Union all the time anyway.
So in terms of physically handling procedures and what have you, whilst it may be more complicated, we will still deal with them. And I think it's important to note that a lot of European manufacturers really see the UK as being a highly sophisticated market, and a very desirable place to have business. And they want to keep market share. So the bottom line is simply this, that whatever happens in terms of Brexit and what happens on a political basis, that business will make it work. And I'm quite sure that the European manufacturers will want to maintain their market share in the UK, and they will do whatever is necessary to make that the case.
And in terms of getting hold of quality people and moving people around your business around the world, do you think Brexit will make any difference?
I really don't think it will, because as I say, if you think about it, we move North Americans, Chinese, Portuguese, every type of person that you can think of in terms of nationality, around the world. And we deal with all the complexity of doing that. And if it turns out, as a result of the Brexit, that it's more complicated, then so be it. But we will still do it.
There's been a big debate in the UK about productivity, especially compared to other European countries, and how we're a less productive country. What's your experience of running business in different countries in Europe, and then how does the UK stack up?
Yeah, so I mean I read the same data and look at productivity in the UK relative to our operations in Europe, and I can tell you, actually, that the European benchmarks for various key performance indicators would suggest the UK is actually in a very good position. One of the measurements we have is how we measure the conversion of our gross profit to EBITDA, to [INAUDIBLE] bottom line, if you like. And the UK is one of the very best performers in the whole of Europe.
So we actually do take the UK as being an example and a benchmark for some of the other European businesses to achieve those sort of performances. So you could probably measure productivity in some way, but in terms of actual conversion of the gross profit into the bottom line, the UK is a very good example of how it can be done, and an example to many of our countries around the world.
And just in terms of productivity and challenges, one of the things I think you talked about is tax in the US, which might surprise some people, about when looking at your tax burden around the world.
Yeah, [? some people might be ?] surprised to hear that. The tax burden in North America is quite high. And when you take federal tax, state tax, local taxes, add it all together, the North American market is one of the most highly taxed markets. And if you take the combined tax rate from Brenntag as group is around about 32, 33%, [? other ?] [? companies ?] actually a lower tax rate. And the reason ours is that high is because of our large share of the American market.
And are you expecting that something might change there with Donald Trump talks a lot about tax?
Well, it remains to be seen, I think. I think there's a difference between rhetoric and action. And I think we've seen with the-- certainly with the current regime's performance today, there's a lot of talk, but there's a lot to be done yet. And I think you can clearly-- if they do reduce corporation tax in whatever guise they mean to do that, then it will have to be a levelling of tax in the different areas. So let's see how they do it. But clearly, from our point of view, any change in corporation tax would be a significant help for us.
Where do you see the future for Brenntag?
Well, Brenntag is a global chemical distribution business. We are operating in a highly fragmented market. I have actually said to many people that my ambition is for this business to be a one-billion EBITDA business, euro EBITDA business. And that is my ambition. And I think we're at 810 at the moment. And I'm setting my sights on that. So that's part of my future, if you like, to try to achieve that. But also globally, I see this business becoming much larger.
You've got almost global coverage. You're also famous for buying quite a few companies. Are you still looking for acquisitions, and where are you hoping to expand?
Well, you're quite correct, we are a very acquisitive company. We buy five or six companies on an annual basis. Currently, we're looking at-- we're still looking at North America as being sort of a target-rich environment for us in terms of it's a huge market, quite fragmented. But we're [INAUDIBLE] looking more and more to [INAUDIBLE] Africa and India as being areas of the world where we could be stronger geographically. And we're looking to make acquisitions in those areas during the course of 2017.
Just finally, where do you see the world economy going from here?
Well, I think we're already planning for the world economy to be a relatively low-growth environment for years ahead. I think there's no other way of looking at it. And in fact, we're applying our business to operate in a low-growth environment. And so I think, you know, the sort of 1 or 2 or 2.5% industrial production growth, GDP growth is probably the best we might expect now for the next five or 10 years. And that's the environment we have to work in, and that's the environment we're planning to live in.
Do you see a recovery in Europe taking hold?
Yeah, I think so. If you look [INAUDIBLE] last few years, it's been sort of a bit of a [INAUDIBLE] gone back into slowdown. But I think 2016 was a solid year for us. And I actually see 2017 maintaining or slightly even accelerating. So I think we actually have got a grip here in terms of the European business [INAUDIBLE].
Steve [? Holland, ?] thank you very much.